Tuesday, December 21, 2004


The Social Security system is merely a Ponzi Scheme - one that hurts poor people most.

First, it's the biggest tax poor people pay - bigger than the income tax (which many do not pay, because they earn so little; Bush's rax cut exempted more poor people from paying any taxes - this is why rich people pay a GREATER share of federal revenue now, than before).

Second; poor people generally start work at an earlier age and die younger than rich people. Especially poor minorities. So they end up paying more into the Social Security "Trust Fund" (so-called) and taking less out. And since - under the current system - the benefit is not transferable to heirs, all that "input" - the lifetime of payroll taxes - goes back into the system.

POOR PEOPLE ARE GETTING SCREWED BY SOCIAL SECURITY. Social Secuirty is a collossal rip-off of poor people and a transfer of money to richer people who live longer.

If we gradually privatize Social Security (which means that each worker OWNS their own retirement fund), then poor people will keep everyhting they input, and be able to pass along what they don't use themselves to their children - thereby increasing family wealth and increasing the chances that the family will emerge from poverty.

Gradual or incremental conversion to a private system is very doable - ON PAPER. It would take only a few minor, across-the-board changes:

(1) We gradually increase the age at which a person may collect benefits (say... one month every four months. In 15 years benefits would be available to people at age 70 - an age more in keeping with current real-world demographics.

(2) We should exempt the first $15,000 of income from the payroll tax, and raise the ceiling of the payroll tax to make up the reduction.

(3) We gradually allow payroll tax-payers UNDER THE AGE OF 50 to divert from 5% to 15% of their payroll tax to special accounts IF AND ONLY IF they agree to take a proportionately larger reduction of benefits when they retire (let's say twice as much). In other words, if they divert 15% of their payroll tax into a personal account, then they must take a 30% reduction of their benefits upon achieving retiurement age. This guarantees that the diversion of payroll tax won't deplete the outflow of benefits, and keeps the current Ponzi Scheme afloat for older people who are stuck in it.

(4) We gradually increase the amount that people may divert to personal accounts until every worker has a personal account, and the current Ponzi Scheme disappears through attrition - probably around 2050.
The incremental nature of this plan - combined with the exemption of lower income people from the current payroll tax (and raising the income ceiling of the tax) - makes it very friendly to poor people who - after all - have less assets to depend on for their own retirement; (this was - after all - the target group for the scheme to begin with).

Another way to make retirement easier for poor people is to increase home ownership; home ownership is a MAJOR source of middle class wealth. We should aggressively PRIVATIZE low income/public housing and make poor people OWNERS and stakeholder in their homes and neighborhoods. By sweat equity alone, they can increase the value of their homes, and thereby create a nest egg.

All it will take to accomplish ALL of this is for the public to THINK ANEW.

The public must be encouraged to be bold enough to seek new contemporary solutions to these issues, and not remain shackled to the solutions which seemed workable in 1935. We should no more expect a retirement scheme designed in 1935 to be viable now, than we should expect a 1935 plane to be able to fly us around the world, or a 1935 telephone to afford us wifi connectivity.

In this sense, privatization of Social Security must be seen as a long overdue innovation (and not merely something needed as a result of demographics).


Dick said...

Social Security Reform Number 4

Dick McDonald http://dickmcdonald.blogspot.com/

LDOs from the Left
The left is going to Lie, Deceive and Omit (LDO) with a viciousness appropriate to the stakes. And the stakes couldn't be higher. The left, if it lets Bush convert Social Security from a Democrat issue to a Republican one with its attendant supplicants , will destroy the Democrat party for decades to come. Their attacks, therefore, must be met with truth and factual support. And it must be disseminated to the public as fast as the left dishes it out. Their attempts to derail privatizing Social Security must be defeated in the public arena by the Blog and our allies in radio, the free press and Fox.

The most furious and deceiving attacks will come from the NYT. Their resident slimy, Paul Krugman, took his initial shot in a December 10th editorial. To warm up our side to the war to come, I will attempt to mount a response to his LDOs. I start with his words.

The National Association of Securities Dealers," The Wall Street Journal reports, "is investigating whether some brokerage houses are inappropriately pushing individuals to borrow large sums on their houses to invest in the stock market." Can we persuade the association to investigate would-be privatizers of Social Security?
For it is now apparent that the Bush administration's privatization proposal will amount to the same thing: borrow trillions, put the money in the stock market and hope.
"Borrow trillions", a lie. "Put the money in the stock market", a deception. "Hope" another lie.
Borrow trillions.. Krugman's assertion that Bush must borrow Trillions is a reference to the fact that Bush intends to divert a portion of the employee's taxes withheld to a special fund owned by the employee. By vesting the money in the employee, Bush removes the surplus of those funds regularly stolen by Congress and used for general purposes.

Missing from this lie and deception is that there is no debt and there will be no borrowing in the sense that Krugman implies. At this point in time, there is an unfunded obligation to pay retirees of approximately $11 trillion. But there is no debt involved. We stopped years ago from saving social security withheld in a separate account for safekeeping. We used the excess to pay then current bills and since have burdened current workers with the responsibility of paying the current retirees. T

The surplus of the taxes collected over the benefits paid may add up to $1 or $2 Trillion in next 10 years or so. That's right. Krugman complains that "cost" is in reality the funds that Congress normally steals from workers that Bush will return to them in the form of their personal retirement accounts.
Put the money in the stock market and hope.. There is no way Congress will allow an Enron-type debacle. The guidelines for investing these funds will be stringent or this idea will never see the light of day. No doubt the retiree can opt to put his money in safe investments like US Government Bonds which pay more than Social security has paid. They may invest in stable stocks that mirror the movement of the market in general. But the alarmist, leftist, slobbering Demopimp, Paul Krugman, will continue to LDO the readers.

Privatization would begin by diverting payroll taxes, which pay for current Social Security benefits, into personal investment accounts. The government, already deep in deficit, would have to borrow to make up the shortfall.

Boy can this man-child lie. He states current payroll taxes pay for current social security benefits inferring that if one dime of the current taxes are diverted to personal accounts then there would be a shortfall in benefit payments. This a bald face lie. In the fiscal year ended September 30, 2004 tax receipts associated with Social Security were $554.8 Billion and the total benefits and costs paid out amounted to $417.6 Billion. The difference, a surplus of $137.3 Billion, was transferred to the general fund and spent by Congress. In actuality it went to reduce the deficit created by the "over-generous with our money" congress.
The initial buzz on privatization concludes that 2 points of the employees 6.2 points withheld or 32% of the employee's contribution witl be privatized. Now remember that the employee's contribution is only half of the amount contributed. The employer contributes 6.2% as well.

Therefore, only 16% of the combined employee-employer contribution will be diverted to personal accounts. Now of the $554.8 Billion of Social Security receipts, $465.2 Billion were the combined employee-employer payroll tax contribution. Now if we privatize 16% of that amount, or $74.2 Billion, we find we can pay that amount easily out of the $137.3 surplus of receipts over costs paid in 2004. But remember, $74.2 Billion is an overstatementt. They plan to limit its application to the young which will substantially reduce this amount. So much for the lying piece of distortion and deceit that is Paul Krugman.

Paul omits any semblance of rationality when he mongers the deficit mantra and lies through his teeth that we will have to borrow to cover the diversion to private accounts. The propagandist in Krugman really shows through when he says we have to borrow. No Paul we don't. It is merely a bookkeeping entry on the governments books. We already owe the participants in social security their future benefit. That's fixed.

What upsets Paul and his demospenders is the case where 100% of the combined employee-employer contribution was privatized, then the government would have to reduce its spending to the extent it still owed and paid benefits to current and near-term beneficiaries. That won't happen. The 16% scenario is more than likely the compromise solution to test the waters and that can easily be paid out of the Social Security surplus for the first 5-year test period the law would be in effect. Remember Paul is fighting for the life of the Democrat Party and has no reason for reason. His mission is to destroy.

In a later article, I will address the feasibility of privatizing the entire 12.4% right now. Presently I will leave my discussion of the balance of Krugman's article to No. 5. as No.4 is already too long.

Dick said...

Read the series I have posted on dickmcdonald.blogspot.com......this is a serious sea change and I want all 12.4% (6.2 % of the employees and 6.2% of the employers) contribution to be owned by the employee right from the start. To do that the blog must understand the mathematics of it all. This site's interest has to be duplicated many times over by many bloggers to get the knowledge out. We are dealing with trillions and many issues. This Ponzi scheme can be turned into a 50-year nightmare for the Democrat Party. Pass all information to everyone you know.

Dick McDonald

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